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Benefits Column

John McCain on Health Reform

Many of Sen. McCain's proposals coincide with the interests of business groups -- although not all, particularly his proposal to remove self-insured plans from ERISA exemption. His proposals offer a clear contrast with his Democratic opponents.

Monday, April 14, 2008
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Since my column last month, the dynamics of the campaign have changed again, with Arizona Sen. John McCain now leading in many polls for November. His views on healthcare were always relevant, but with this change in his prospects, one might say "now more than ever."

McCain does not present a detailed plan, but his statements provide a clear framework for the way he would like the law to be changed.

McCain advocates access to healthcare for all citizens, rather than health insurance.

Thus: "John McCain believes in personal responsibility. Families should be in charge of their healthcare dollars and have more control over their care. Public health initiatives must be undertaken with all our citizens to stem the growing epidemic of obesity and diabetes, and to deter smoking. We can improve health and spend less, while promoting competition on the cost and quality of care, taking better care of our citizens with chronic illness, and promoting prevention that will keep millions of others from ever developing deadly and debilitating disease."

These concepts would not require public-policy or employer changes. In fact, they reinforce the types of initiatives in progress today in both the public and private sectors.

This suggests a head-on difference with whomever he runs against for the presidency. (See Health Reform, Democratic Style.)

McCain would require data transparency on outcomes, costs and prices. He would facilitate the development of national standards for measuring and recording treatments and outcomes. These are not controversial changes.

The "requirements" are things that cannot happen fast enough for most employers, and many would prefer that the federal government require and enforce national standards rather than just "facilitate" the process. Facilitation has been going on for some years, and progress is slow as competitive standards end up being developed.

McCain would work to "reform the payment systems in Medicare to compensate providers for diagnosis, prevention, and care coordination." He states that "Medicare should not pay for preventable medical errors or mismanagement."

Again, employers would mostly welcome such changes as they would help to drive the private market in these directions as well.

The senator does suggest he would change current pre-emption provisions in the Employee Retirement Income Security Act, when he says he would "give states the flexibility to, and encourage them to experiment with: alternative forms of access; risk-adjusted payments per episode covered under Medicaid; use of private insurance in Medicaid; alternative insurance policies and insurance providers; and, different licensing schemes for medical providers."

ERISA adjustment is also implied by his call to "build genuine national markets by permitting providers to practice nationwide" and his proposal to "allow individuals to purchase health insurance nationwide, across state lines, to maximize their choices." 

A majority of private healthcare coverage is provided by self-insured employers that enjoy and support ERISA pre-emption. Those employers will not be happy if McCain is elected and succeeds in making these proposals law.

McCain also calls for actions to "foster the development of routes for safe, cheaper generic versions of drugs and biologic pharmaceuticals and the development of safety protocols that permit re-importation to keep competition vigorous."

Employer initiatives have moved in this direction, and any added help will likely be appreciated.

He calls for tort reform and a safe harbor for doctors that follow clinical guidelines and adhere to patient safety protocols. Employers have generally favored tort reform in the health area.

And he believes that more health insurance options should be made available by the market. He would change the tax code to "eliminate the bias toward employer-sponsored health insurance, and provide all individuals with a $2,500 tax credit ($5,000 for families) to increase incentives for insurance coverage."

McCain does not offer any proposals for financing of policies when such tax credits fall short of the actual cost of the health insurance. (Average premiums for both individuals and families are substantially higher than these credit amounts today.)

Employer surveys suggest that employers would be happy to see tax incentives extended to individuals, but would likely find the $2,500 and $5,000 limitations difficult to deal with.

McCain has not specified individual market reforms that would level premiums, making uniform tax credits problematic.

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And, making the value of health insurance taxable could be extremely disruptive, as individuals would not have the money. Few employers would increase wages across the board to accommodate a change in health-policy tax treatment.

In spite of the view of most labor economists that workers pay for all health insurance with lower wages, at best this is true in an aggregate sense across the economy, not on an individualized basis. McCain provides no details on how his proposal might be made to work.

McCain believes that individuals should be allowed to purchase insurance through any organization or association that is willing to act as a facilitator of group purchase, and is willing to meet rigorous standards and certification. He also believes that policies should be portable across all jobs, and should automatically bridge the time between retirement and Medicare eligibility.

Employers would likely support these notions in theory, but the devil is always in the details of implementation.

How would the tax changes tie together with new purchase arrangements and policy portability?

The power of employer group coverage is in the large risk pool where adverse selection can be controlled to a satisfactory level. How an employer could maintain a satisfactory risk pool while accommodating a full set of McCain reforms will require far more details than McCain has yet worked out.

The Republican candidate's healthcare proposals are very similar to those of President George W. Bush. And many have been before the Congress for up to seven years without enactment. Even discussion of such reforms has been limited since the Democrats took control of both houses of Congress.

Employers, as a result, are likely to have a good deal of time to evaluate proposals of a President McCain should he put them forth with sufficient detail for evaluation. It is doubtful that he will do so prior to the election.

Details on all of the candidate proposals are online as are full details of McCain's position. Also online are some assessments, speeches and video clips of McCain on healthcare.

Next month, I will consider what the next Congress might send a new president in the way of health legislation.

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